Fourth Circuit Takes on Applicable Commitment Period Issue

Posted by NCBRC - June 6, 2013

The Fourth Circuit has accepted two direct appeals presenting the issue of whether the applicable commitment period for a chapter 13 plan applies when there is no projected disposable income. Both cases first treat the issue of whether an expected change in payments during the course of the plan should be considered when determining the debtor’s projected disposable income at the outset, and then deal with the relevance of the applicable commitment period where the debtor has zero or negative disposable income as calculated by the means test.

In Pliler v. Browning (In re Pliler), No. 13-1445 (4th Cir. filed April 4, 2013), the means test showed the debtors to have negative disposable income, but the Schedules I and J showed an income surplus of approximately $1,500.00. The debtors’ plan proposed to pay approximately $1,700/mo. for fifteen months and $1,400/mo. for forty months, exiting the plan after 55 months. The court found that because the debtors proposed to pay into the plan despite the results of the means test, it was “virtually certain” that they had disposable income that could be projected over the course of a plan. In so holding, the court turned the Lanning Court’s phrase “virtually certain” on its head, relating it to a debtor’s expected income over the course of the plan (a calculation properly performed under the means test) rather than expected changes to a debtor’s income which would render the results of the means test suspect. Hamilton v. Lanning, 130 S.Ct. 2470, 2478 (2010) (projected disposable income “may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.”). The court went on to find that, since the debtors’ plan demonstrated an ability to pay $1,784 per month, it would confirm only a 60-month plan paying that amount unless the debtors provided evidence that it was known or virtually certain they were unable to pay $1,784 for 60 months.

Pliler Bky opinion

In Logan v. Knish (In re Knish), No. 13-1484 (4th Cir., filed April 12, 2013), the debtor’s plan called for early termination upon the payment of an allowed secured claim. The trustee argued that the elimination of the secured debt during the plan amounted to a change in income that was “virtually certain” to occur. The court relied on the reasoning in In re Ballew, No. 12-04059-8-JRL (Bankr. E.D. N.C. Jan. 11, 2013), for the finding that the expectation that debtor would pay off a secured debt prior to completion of the plan was not the type of change contemplated by the Lanning Court. The Ballew court correctly found that the means test examines past income and Lanning only requires recalculation of that amount if future events are “virtually certain” to occur which will significantly change it. The Ballew court then found, and the court in Knish agreed, “In cases in which there is no projected disposable income, the payment of other plan obligations in full in a period that is less than the applicable commitment period does not, without more, require a recalculation of projected disposable income.” The Ballew court relied on Maney v. Kagenveama (In re Kagenveama), 541 F.3d 868 (9th Cir. 2008), to find that the applicable commitment period does not apply where there is negative or zero disposable income. This reasoning was adopted by the court in Knish.

Ballew Opinion

Knish Bankr Opinion

The issue of applicable commitment period where disposable income is absent is currently under review on rehearing en banc in the case of Danielson v. Flores (In re Flores), 692 F.3d 1021 (9th Cir. 2012). See also American Express v. Henderson, Nos. 11-35864, 11-35865 (9th Cir.) (issue fully briefed and awaiting decision by the panel in Flores).

The NACBA membership took part in the Ninth Circuit cases and NCBRC is preparing to file an amicus brief in Pliler.

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